Sterling to slide to $1.20 if no Brexit deal agreed: Reuters poll

LONDON (Reuters) - Sterling would lose around 9 percent of its current value against the dollar and trade at $1.20 in the immediate aftermath of Britain leaving the EU without a deal, a Reuters poll of foreign exchange strategists predicted.

An English ten Pound note is seen in an illustration taken March 16, 2016. REUTERS/Phil Noble/Illustration/File Photo

However, most economists expect the two sides to eventually agree a free trade deal, and medians in the Feb 28-March 5 poll of over 60 strategists said cable would be at $1.32 at the end of March as the divorce is due to take effect - close to the $1.314 it was hovering around on Wednesday.

In six months’ time the pound will have strengthened to $1.35 and in a year to $1.39, the poll found, little changed from a February poll and still significantly below levels it was trading at before the June 2016 referendum vote to leave the bloc.

All Reuters polls ahead of that vote correctly predicted sterling would fall in the event of the country choosing to leave the European Union.

A separate Reuters poll of economists on Wednesday showed the chance of a no-deal Brexit had fallen to 15 percent, but if the two sides do part ways without agreement, one forecaster predicted sterling could sink as low as parity to the dollar.

“Sterling is likely to fall to parity ...if the UK does not keep traffic flowing across the channel tunnel, preserve the Good Friday Agreement (with Ireland) and avoid the other negative consequences of a hard Brexit,” said William Adams at PNC Financial Services.

While no other respondents were that gloomy, even the most optimistic forecast for no-deal cable was a drop to $1.28.

“A disorderly Brexit - for us a very unlikely scenario - would push cable towards the cycle lows of $1.18-$1.20,” said Roberto Cobo Garcia at BBVA.

Likely offering some support for sterling, the U.S. Federal Reserve is in a holding pattern while the Bank of England is expected to raise borrowing costs towards the end of this year.

But interest rate differentials will provide little help for sterling versus the euro.

The European Central Bank is seen delaying a rate hike from record lows until 2020, another Reuters poll showed last week, but against the common currency the pound will barely move.

In one, three and six months, one euro was expected to worth 86.0 pence, the same as it was on Wednesday. In a year sterling will have marginally strengthened to 85.4p.

Polling by Indradip Ghosh and Mumal Rathore; editing by John Stonestreet